What trends offer opportunities on the European outsourcing market?
There are many promising trends in the European outsourcing market. Big Data, 5G and Artificial Intelligence have served as triggers and enablers for several other trends and innovations. The COVID-19 pandemic is also accelerating most existing trends, led by the digital transformation. The main opportunities can be found in big data, mobile and cloud application development, the (Industrial) Internet of Things, virtual and augmented reality and machine learning, as well as in the mastering of technologies related to these trends. The skills shortage in Europe and increased demand for added value / specialised service providers also offer opportunities.
Contents of this page
- COVID-19 accelerated the digital transformation
- Big data revolution
- Digital Resonance influences location attractiveness
- Data security and privacy are growing in relevance
- Booming demand for mobile application development
- (Industrial) Internet of Things on the rise
- Demand for artificial intelligence and machine services outsourcing accelerated by COVID-19
- The potential of 5G – more connections, more data
- Virtual and Augmented Reality widely available and increasingly used
- Outsourcing graphic design services has become mainstream
- Blockchain technology is put into practice
- IT skills shortage drives outsourcing
- Demand for added value and professional partners
- Geopolitical instability influences the selection of service providers
- Shifting from traditional to As-a-Service sourcing
- Increasing interest in impact sourcing offers opportunities
1. COVID-19 accelerated the digital transformation
Digital transformation (also known as DT or DX) is the use of technology to solve problems. Non-digital or manual processes are digitalised, and existing digital processes are improved. The techniques used for these processes are constantly changing to keep up with new needs of users and new technological possibilities.
This transformation was already a priority for many European companies before 2020, when the COVID-19 pandemic hit Europe. For example, research by Ancoris and Cloud Industry Forum revealed around 30% of British companies had a digital transformation strategy in place and another 50% were in the process of implementing one. Almost all of the remaining 20% were planning to have a strategy within 12 months.
But the arrival of COVID-19 accelerated the digital transformation. European companies are also facing the challenges of staff working from home. They are also dealing with processes they wished they had automated before most of their employees had to work from home. These circumstances will give many European companies the final push to open up towards digitisation and automation of their work processes, lowering the threshold for outsourcing in the future.
So, in the long run, it is expected that European companies will be more likely to outsource their IT or business processes to other countries. According to recent data, digital adoption has made 5 years’ worth of progress in just 8 weeks during the crisis.
- For more information on how the pandemic may increase digital transformation, see for example McKinsey’s article on how the COVID-19 recovery will be digital and UNIDO’s COVID-19 implications and responses –digital transformation and industrial recovery.
- For more information on the effects of the COVID-19 pandemic and other developments, see our Market Insights and Outlook [A1] [A2] studies about the demand for IT Outsourcing, and the demand for Business Process Outsourcing.
- For more information about preparing for and guiding your company through crisis situations, see our study on how to respond to COVID-19 in the IT and Business Process Outsourcing sector (ITO/ BPO).
2. Big data revolution
The amount of data produced in Europe every day, is continuously growing. This data can be linked and analysed to create new knowledge and innovative solutions for economy and society. An increasing number of European companies and governments are aware of the benefits that big data solutions can offer them.
To maximise the benefits of big data, data should be properly collected, structured, stored, analysed and visualised. Big data has the potential to provide companies with real business opportunities, for example in business intelligence, sales/marketing insights and brand reputation management. However, doing this effectively takes time and resources. Outsourcing this work – or parts of it – allows companies to stay focused on their core business, while receiving new insights.
The shortage of big data scientists pushes European companies towards outsourcing their big data projects. The combination of increased demand with shortage in supply of big data professionals means there are opportunities for service providers offering big data related services.
The European big data market was valued at €13.6 billion in 2019, and was expected to have an average annual increase of 25.7% from 2020 to 2025. However, it should be noted that this prediction was made before the outbreak of the global COVID-19 pandemic. Changes in the predicted average annual increase are expected, but the exact effect of the pandemic on the market is not yet clear and may vary across services and industries.
Globally, approximately 80% of the data generated over the next five years will be unstructured. This unstructured data has enormous potential for European companies, highlighting the need for analytical tools operated by skilled personnel in order to extract valuable insights. Nevertheless, it must be remembered that privacy and security will remain important issues.
Although European companies prefer to perform the analysis of their data in-house, data collection services and tools, both cloud-based and otherwise, offer opportunities. Not only are data collection services and tools in high demand but data collection procedures are also relatively standardised and do not require extensive analytical skills. This makes it a relatively easy service for you to offer.
Data volumes will likely continue to increase as a growing number of people and consumers use internet and online services/devises. Further enhancement of machine learning technologies will also increase the potential of big data. As such, the future appears promising for services and tools that are able to collect, process and analyse data.
- See our study on the market for Big Data solutions and services to read more about the opportunities and requirements in the market.
- Take note that the demand for big data is not limited to large or small enterprises but is applicable for organisations of all shapes and sizes.
- Stay up to date with the latest developments in Big Data in Europe through industry associations such as the European Big Data Value Association.
- Take a look at Offshore India Data Entry for an example of a company in India that processes data on behalf of companies across the globe, including the United Kingdom.
3. Digital Resonance influences location attractiveness
Your level of digital resonance has become an important decision factor for companies that are looking for an IT outsourcing provider. Digital resonance looks at how companies handle the effects of digital transformation. They particularly look at how you handle automation and cybersecurity.
European companies increasingly rely on outsourcing and automation. This makes their systems more vulnerable. The digital resonance of an outsourcing provider is therefore of increasing importance. Every other year, global management consulting firm Kearney, releases the Global Service Location Index (GSLI). In 2020, Kearney added digital resonance as a fourth category on their GSLI.
Kearney measures the competitiveness of an outsourcing destination based on:
- how attractive it is financially;
- its people skills and availability;
- business environment; and
- digital resonance
- Check out how your country scores on the GSLI.
- Improve your digital resonance. Make sure your employees have the skills to manage automation and cybersecurity. Also invest in solid data security and privacy (see trend below).
4. Data security and privacy are growing in relevance
The European General Data Protection Regulation (GDPR) came into effect on 25 May 2018. This regulation was designed to protect individuals in Europe from privacy and data breaches and to simplify the regulatory environment for international business. Since then, it has also been incorporated into the European Economic Area (EEA)-Agreement so the new GDPR is also enforced in Iceland, Liechtenstein and Norway.
These new rules were introduced to give people more control over their personal data and let businesses benefit from a level playing field where the laws and regulations are the same in every country. The GDPR applies to all companies processing the personal data of individuals in Europe, regardless of the company’s location. This means it also applies to you directly.
Under the old directive, the protection of any data by which an individual can be identified was the sole responsibility of the data controller (owner). However, under the GDPR, any company or individual that processes data is also responsible for its protection. Examples of personal data this regulation protects are: name, email address, bank details, social media content, photo or IP address.
- Make sure you comply with the GDPR if you process data of European citizens (or sensitive information of any kind).
- Study the GDPR’s European data protection rules and principles if you are dealing with personal data. This will give you a good understanding of what is allowed and what is not.
- See our study about buyer requirements on the European outsourcing market for more information on the GDPR (as well as additional European legislation) and other requirements in the sector.
- Take a look at Piper’s Global Privacy and Data Protection Resource to see how certain individual countries in Europe are applying additional privacy regulations.
- The United Kingdom has left the European Union, the most recent developments regarding GDPR in the United Kingdom can be found on the website of IT Governance.
5. Booming demand for mobile application development
In 2019, approximately 75–80% of European citizens owned a smartphone. This makes smartphones a common good. The highest smartphone penetration rates in Europe can be found in the Netherlands and Sweden (both 86%). Bulgaria and Greece (63 and 62% respectively) have the lowest smartphone penetration in Europe.
The European demand for mobile applications has reached its peak growth, but it is still growing and large. COVID-19 has not really changed the overall demand for mobile applications. However, some industries currently invest more in mobile application development than others. For example, the healthcare industry and European governments invest highly in mobile application development. Mobile application development for the travel and event industry offers less opportunities.
In general, the European market for standard and consumer mobile application development has reached its saturation point. Most growth can be found in the gaming sector. There are so many generic applications available that it becomes difficult to generate substantial revenue. Your most promising strategy would therefore be to develop tailor-made mobile applications, focusing on niche market segments or company and industry-specific solutions, like healthcare.
The enterprise market can be interesting because enterprise apps generate greater revenue than consumer apps. Also, most developers target the consumer market, making the enterprise market less competitive. Mobile applications that allow companies to simplify work processes, facilitate remote working, and/or increase efficiency are the most promising. The applications have to be available anytime, anywhere and on any device.
Outsourcing mobile application development is very common for most European companies. The main reasons for that are the lack of well-educated, experienced personnel, lower costs and the ability to focus on core competences instead. This gives you interesting opportunities. As a provider from a developing country with competitive salaries, you can provide such services at a lower cost than local or nearshore service providers in Europe.
- Distinguish yourself from competitors. Competition in this market is fierce as there are many providers offering similar services. Offer technology expertise combined with specialised domain knowledge.
- Compare yourself with international and local mobile app competitors on Appfutura.
- See our study about mobile application services for more information.
6. (Industrial) Internet of Things on the rise
The Internet of Things is on the rise, both with consumers (often referred to as IoT) and businesses (also called Industrial Internet of Things, or IIoT). IoT and IIoT refer to objects being connected and interconnected to the internet. These ‘things’ are embedded with electronics, sensors, software, actuators and network connectivity. This allows them to collect, send and receive data, making these devices ‘smart’. By collecting and analysing data from a wide range of sensors, broader applications like smart buildings become possible.
The technology behind IoT is advancing rapidly, becoming faster, cheaper and more efficient. For example, smartwatches have evolved considerably since their debut. Their processors now have more than double the capacity, while using a fraction of the power. Technological developments are expected to drive demand for IoT devices in the coming years.
Consumer areas of the IoT include examples from travel, everyday life and healthcare. Specific examples of IoT in consumer travel are smart parking and personalised travel experience. Examples from IoT in everyday life are security and surveillance (home automation) systems and services and smart clothes.
Examples of IIoT include smart farming (like soil preparation and livestock monitoring) and smart travel (like fleet management and payment and ticketing solutions.
Consumer devices account for 63% of all IoT devices, with industrial devices accounting for the rest. This ratio is expected to remain the same in the coming years. This makes consumer IoT an interesting market for you. IIoT also offers good opportunities, as the spending is much higher. Although consumer devices comprise almost two-thirds of all connected devices, they only make up 19% of Europe’s IoT expenditure. In 2019, revenues from the consumer segment were estimated at €28.5 billion.
In the coming years, consumers are expected to purchase increasingly more expensive connected things. Therefore, the gap between the use of IoT by consumers and the industry will get smaller. Nevertheless, industries will remain the greater spenders, also because industrial IoT solutions are generally larger and more complex that consumer IoT solutions, which makes them more expensive.
An expected 60% of the connected (IoT) devices will be cross-industry devices and 40% will be vertical-specific devices. Cross-industry devices are devices that are used in multiple industries. They are mainly used to save costs. An example of a cross-industry device is a building management system. Vertical-specific devices are used in specific industries, such as healthcare and manufacturing, to improve efficiency and accuracy.
There is no European information available on the impact of COVID-19 on these 2019 predictions for 2020. There is, however, global research that forecasts that revenues in (I)IoT will rise by 20% in 2020 across all (I)IoT sectors, despite the COVID-19 pandemic.
Within the IoT, cross-technological products are a trend in a trend. An example of a cross-technology product is robotics. Robotics and IoT are considered two separate fields, but their technologies are intertwined and grow simultaneously. It is expected that the Internet of Robotic Things (IoRT) will be a growing value-added niche combining the two. IoRT involves the combination of sensor data from a range of sources, processes and using it to control and manipulate objects in the physical world.
- Take a look at Eacomm Corporation from the Philippines for an example of a company that has successfully built up an international customer base in IoT related services.
- Visit specialised IoT/IIoT/IoRT events in Europe to update your knowledge, observe the trends, find new inspiring ideas and talk with potential customers. For 2021, most events are planned to be online only, but there are few exceptions. And keep an eye on the many start-up competitions, fairs and events.
- Take a look at our study about the (I)IoT market[A1] , to learn more about this market.
7. Demand for artificial intelligence and machine services outsourcing accelerated by COVID-19
Artificial Intelligence (AI) is the concept of machines being able to carry out tasks in a way that we would consider smart, intelligent and autonomous. Machine Learning (ML) is an application of artificial intelligence, based on the idea that we should give machines access to data and let them learn for themselves. The outcomes will then improve through experience. Machine learning is just one way we aim to achieve artificial intelligence.
European companies and governmental organisations increasingly understand that (custom) machine learning and artificial intelligence solutions give their company a competitive edge. However, they usually do not have in-house development skills, as this requires specific knowledge, expertise and tools. This often leads them to outsource the development of their machine learning and artificial intelligence.
The global AI market is expected to be worth over €100 billion by 2022. China and the USA are the leading countries in AI patents. However, as a region, Western Europe is also quite strong. European leaders have recognised the importance of not lagging behind on AI and are raising their ambitions. The European commission has made AI a top priority for the next five years. Actions include rolling out devoted national and EU-level AI strategy documents, boosting research and innovation and exploring new regulatory approached for managing the development and use of AI.
The appearance of COVID-19 enhanced the importance of AI and machine learning even more. Across industries and geographies, AI and ML have enabled leaders to more effectively handle the challenges presented by these unprecedented times, from supporting and protecting workers to engaging increasingly digital customers and managing fragile supply chains. An example of a recent science breakthrough achieved by the use of AI in healthcare, is protein folding.
However, the COVID-19 pandemic also brought some problems to the surface. Machine learning relies on the principle that patterns and behaviours from the past will likely repeat in the future. However, recent data inputs show significant changes in human behaviour. Examples are physical distancing in daily life, less travel, and altered spending habits. For models built before the pandemic (ones that relied on historical data), new input might severely reduce predictive capabilities. And new and lasting patterns, such as higher consumer spending on digital channels, will likely emerge, which will also invalidate or reduce the predictive power of pre-COVID-19 data.
All in all, the relevance of Artificial Intelligence and Machine Learning is growing significantly and provides very good opportunities for outsourcing providers. Most organisations use AI as a tool for generating value. A survey by McKinsey revealed that more than two-thirds of the companies that adopted AI in 2020 found that its adoption increased revenue.
- For more information on the state of AI in 2020, please read the report by McKinsey.
- Communicate you are aware of the impact COVID-19 can have on the reliability of your data, it shows you are proactive and know what is going on in the market.
8. The potential of 5G – more connections, more data
With higher bandwidth, 5G – the next generation of mobile data infrastructure – will enable the rise in the number of devices connected to the internet along with the amount of data they generate. The new 5G technology that will be rolled out in the coming years will allow more than 350,000 devices to be connected per square kilometre, which is 500 times more than comparable existing technologies. Although 5G may not provide any direct opportunities by itself, it is necessary for the expansion of IoT.
The European Union intends to have 5G cover at least 40% of the European workforce by 2025, including 70% of European industrial sites and 80% of main logistics routes. Because it will enable more devices to connect to the internet, Service providers are recommended to start looking into the opportunities and possibilities associated with 5G, or risk decreasing demand for their existing products and services.
The three industries that are expected to be impacted most by 5G are manufacturing, energy and utilities, and agriculture. It is expected that 5G will help make manufacturing production operations more flexible and efficient. In the energy and utilities industry 5G technologies could help create more innovative solutions in energy production, transmission, distribution and usage. For the agricultural industry, 5G enables real-time data collecting allowing farmers to monitor, track and automate agricultural systems.
The arrival of 5G connections also paved the way for Edge computing. IoT devices have become cheaper and at the same time increased in computing power. This makes it possible to process data collected on the edge (on the device itself, before sending over the data). This results in huge bandwidth savings. It also leads to greater compliance with privacy regulations, in many cases. This is because the data is gathered and encrypted on the device itself, as opposed to sending out raw data.
- Focus on Western European countries, where machine learning and artificial intelligence spending is highest.
- Stay informed about the latest trends and technologies, as artificial intelligence is a fast-moving market where new technologies and applications emerge quickly.
- Innovate in any of these segments (listed above). Make sure you provide software development skills, capacity and domain knowledge (for example Artificial Intelligence, big data) to clients.
9. Virtual and Augmented Reality widely available and increasingly used
Virtual Reality (VR) technology uses software to replicate a real or imaginary environment. It allows a user to interact with this environment by simulating their physical presence. Augmented Reality (AR) technology overlays computer-generated information onto a live view of a real environment. It enhances the view and allows the user to manipulate the information. Both VR and AR technologies are popular amongst consumers and businesses, in applications ranging from games to healthcare simulations.
The VR market is estimated to be worth around €6 billion in 2020 and is expected to exceed €20 billion by 2025. This is a compound annual growth rate (CAGR) of almost 28%. The main driver behind this growth is the easy availability of VR devices, and the growth is further enhanced by the COVID-19 pandemic.
Technological developments that have led to widespread access to VR and AR include the availability of smaller (less bulky) hardware, less expensive hardware, highly developed graphics and VR sensors in mobile devices. The access to reliable 5G networks will help the further development of VR and AR as they require large amounts of data processing which will be supported by 5G networks.
Applications of VR and AR can be found in gaming and entertainment, healthcare simulations, tourism destination marketing and virtual tours, educational tools, architectural design and engineering support functions. European companies that use VR and AR technology usually do not have the necessary expertise to develop their own system and contents. This offers you interesting opportunities. Examples of European companies that use VR and AR applications are LEGO, IKEA and ZARA.
Opportunities can be found in the replacement of or added value to many parts of existing interfaces, such as shopping, education, real estate and forms of live entertainment.
- Be curious and proactive in seeking out (or developing) innovative technology.
- Look into offering content creation of visual effects. This is a promising service offering for outsourcing providers.
- Take a look at the company Bizarreality from South Africa who offer VR and AR applications to international clients such as Burger King and Adidas.
- See our study about virtual reality and augmented reality for more information on this topic.
10. Outsourcing graphic design services has become mainstream
Graphic design is the skill of combining typography, photography and/or illustrations to deliver (digital) messages. Almost every European company uses some form of graphic design in their visual communication. European companies increasingly see the importance of good quality graphic design and often realise they cannot achieve the desired result in-house. Examples of graphic design services that are often outsourced are logos, branding, advertisements, info graphics, posters, billboards, websites, banners and product packaging.
Graphic design services are in constant motion. Design trends change, there is an increasing availability of design tools and a growing involvement of graphic designers in user interface designs. There is also growing interaction between graphic design items and their audience.
European businesses are increasing their presence both offline and online. They increasingly demand more effective graphic design items to help them communicate with their audience and outdo their competition.
European companies increasingly outsource their graphic design due to reasons related to cost, flexibility and lack of talent and skills. If you have the necessary talent, skills, tools and internet connection, then graphic design services are ideal for outsourcing as this work can easily be performed off-site. Also, the demand for graphic design from EU/EFTA countries is expected to continue to grow in the upcoming years.
- Make sure you stay up to date with the latest (European) design trends. There are plenty of blogs that discuss the newest trends in graphic design. Some examples are 99designs, Adobe Blog and Venngage.
- Focus on the manufacturing, gaming, mobile, healthcare and education sectors to increase your chances of success.
- Combine your technical expertise, artistic competences and user experience (UX) design know-how in your offerings.
- Look at Creative Clipping Path Ltd for an example of a graphic design company from Bangladesh that has successfully entered the European market with graphic design services and has opened a marketing and support centre in Sweden.
- Also take a look at Label Solutions from Bangladesh who supply and design labels and packaging items for apparel, trims, toys, jewellery and gift items. International players such as Superdry are part of their customer base.
11. Blockchain technology is put into practice
Blockchain was originally created to record cryptocurrency transactions and has become a hot topic with broader applications. Blockchain technology stores and distributes digital information by linking several records (blocks) into an encrypted ledger (chain). It is therefore also known as a Distributed Ledger System (DLS).
A blockchain is stored across many computers in a peer-to-peer network. This makes it almost impossible to corrupt. The larger the network the blockchain involves, the more difficult to corrupt it becomes. Blockchain is useful for those companies and industries who wish to achieve greater transparency. This article gives you 58 examples of blockchain applications and their use in various industries.
One way to measure the increasing popularity of blockchain technology is to look at the investments in blockchain start-ups. This went up from €450 million in 2014 to €3.9 billion in 2017 to €7.4 billion in 2018. China and the United States of America both surpass the European Union in terms of blockchain investments. Within the European Union, the United Kingdom accounts for nearly half of the established start-ups and around 70% of blockchain investments. However, the value of blockchain technology in the European Union is growing and is expected to keep doing so for the next 10-15 years.
One of the main appeals of blockchain technology (the fact that data in a blockchain cannot be altered) also offers one of its biggest challenges. The challenge being that the new GDPR gives European citizens the ‘right to be forgotten’, meaning they are entitled to have their personal data erased. The GDPR requirement is not compatible with blockchain technology. Therefore, companies and governments are working on ways to make blockchain technology compatible with GDPR. Therefore, it is also expected that the use of blockchain technology within European companies will increase in the coming years.
12. IT skills shortage drives outsourcing
There is a considerable shortage of Information Technology (IT) skills on the European market. The European Commission expects there could be up to 756,000 unfilled vacancies for IT professionals by 2020. In 2018, 58% of European companies had difficulties finding IT specialists. This percentage increased year over year for the 5 years leading up to 2018 and is expected to continue to increase. The COVID-19 pandemic has only increased the demand for IT specialists.
This offers interesting opportunities for you, as an IT outsourcing provider. As it drives the demand for IT outsourcing from Europe. However, these skill shortages are also found in emerging and traditional outsourcing destinations. This means that companies have difficulty providing the expected skills and capacity.
Not only is new IT staff scarce, but the ever-developing IT landscape also requires different IT skills. Skill shortage in the European IT sector is due to the increase in IT jobs, the decrease of the number of IT graduates and quick IT developments that caused a mismatch between available skills and required skills.
You can counter the IT skills shortage by training new or existing staff, by innovating and developing your own product in one of the trend areas and/or trying to find a niche, specialised market segment to offer your skills and experience with less pressure to provide ever increasing capacity.
Skill shortage is found through all parts of the IT sector but there is a particular shortage of IT architects and programmers and professionals in big data, mobile computing and cloud computing.
- Closely follow IT developments and build capacity in relevant technologies. For medium and long-term technology trends, check Gartner’s emerging technology hype cycles.
- Make sure your employees’ skills match the current needs of the European market, for example by offering them courses and workshops.
- Emphasise the professional skills of your employees in your marketing. Combine this with other advantages of outsourcing to you, such as the availability of your people to scale operations, geographical location and/or references.
- Check the largest job sites in the target country, in order to judge the level of needs for specific skills on a market.
13. Demand for added value and professional partners
Experienced buyers have become more demanding with their requirements. Their required standards in terms of quality, communication, technical expertise, experience, domain knowledge and certification are generally higher than those of companies that are new to outsourcing.
Because the European outsourcing market has matured significantly, especially in Northern and Western European countries, offering added value and being a professional partner has become very important. For first generation outsourcers, saving costs was the main drive for outsourcing. However, second generation outsourcers are now looking for added value to further develop their relationship with service providers.
Ideally, IT service providers should provide the necessary skills, capacity and specialised domain knowledge. Thereby you have a better position if you also focus on value added in a niche, specialised market segment. This also has additional advantages, such as easier profiling of potential customers, targeting and finding potential clients, more focused marketing, sales and promotion activities, less competition to worry about, higher and more stable prices and loyal customers.
- Present yourself as a professional company. Have good references, obtain relevant industry certification, respond quickly, communicate regularly, offer constant quality, comply with contractual agreements and have a good and stable management team to lead the outsourcing project.
- Often potential buyers are asking service providers to provide examples of the documents like a sample contract, SLA and GTaC throughout the tendering or contracting phase). As the European outsourcing market reaches maturity, offering added value and being a professional partner will only increase in importance. Read more about this topic in our study about organising your IT and IT-enabled services exports to Europe.
- Focus on a vertical or horizontal market in order to become more of a specialised outsourcing provider.
14. Geopolitical instability influences the selection of service providers
European companies consider the risks of doing business in a particular country when selecting their service providers. Incidents relating to geopolitical instability make country risk an increasingly deciding factor in the services outsourcing market. Examples of such incidents include the Arab Spring, Sri Lankan terrorist attacks and international trade disputes. Another example is how your country is handling the COVID-19 pandemic. During the first lockdown in spring 2020, many IT outsourcing service providers experienced difficulties with delivering their services.
In 2019, Gartner predicted (in research done before the COVID-19 pandemic) that by 2023, 65% of large enterprises using offshore or nearshore services, will have adopted a multicounty sourcing strategy, because they want to minimise the risks of geopolitical instability issues.
Offshore investors have various areas of concern regarding potential geopolitical instability, such as project management, strategic planning, financial consequences and the presence in the unstable market. Each of them has a negative impact on the local services outsourcing market.
Project management concerns include project delivery and workforce productivity, talent shortage and brain drain, staff turnover, data loss and security. Strategic planning concerns include preventative contract clauses, intellectual property protection risks and awareness (of the outsourcing provider) of political risks. Financial concerns include increased and hidden costs, unexpected transition costs, cancelled projects and loss of investment.
Regarding their presence in your potentially unstable market, offshore investors are concerned about foreign seizure and policy risk, and the loss of communication (for example if there is no internet available anymore). Although geopolitical stability is generally out of your control, you can protect your business from potential negative effects. To (re)assure your existing and potential clients that you can provide continuity, you need to have contingency plans and transition strategies in place.
Include, for example:
- back-up and recovery schemes.
- network and infrastructure security.
- certifying for ISO 27001. It is a framework for managing IT security. It is relevant for all IT outsourcing service providers. The certification demonstrates that you have identified the risks, assessed the implications and have systemised controls to limit any damage to the outsourced work.
- communication plans.
- relocation options.
When you are already facing a geopolitical instability in your location, emphasize to your buyers and potential buyers that they are doing business with a company (you) and not a country. Another positive way to sell your company is that outsourcing partners should be selected based on Return On Investment (ROI) and that you will be able to (continue to) provide attractive ROI for many companies.
- Identify possible geopolitical risks in your area.
- Look at the list of concerns offshore investors might have in your product market combination and focus on minimising these risks by having the right contingency plans into place.
- Develop contingency plans to minimise the effect of any possible incidents on your business and clearly communicate these plans to both your existing and potential clients.
- Country selection is important! Have a good, convincing answer to the question ‘Why should buyers consider your country and not another one?’
- Read our document on how to respond to COVID-19 in the IT and business process outsourcing sector. It gives you advice on how to be able to continue to deliver your contracts if you are faced with another lockdown in your area. You will also learn how to write a crisis plan that can convince a (potential) buyer you are able to overcome instable circumstances in your area.
15. Shifting from traditional to As-a-Service sourcing
Traditional sourcing includes IT outsourcing (ITO) and Business Process Outsourcing (BPO). As-as-service outsourcing includes as-a-service options for both software and infrastructure. Although traditional sourcing still dominates the European outsourcing market it is steadily decreasing, and as-a-service outsourcing is growing steadily. This shift from traditional to as-a-service sourcing is being driven by today’s available digital technologies.
Where companies traditionally had their IT systems on-premises, with software installed in the building, for example, they now increasingly make use of cloud-based as-a-service solutions. As-a-service sourcing models are often referred to as flexible consumption models, where companies and consumers are offered product delivery and only pay for what they consume. European companies prefer such models as they offer a company lower investments and operational costs while still benefitting from the advantages that a product has to offer.
Examples of SaaS range from office software (Word, Excel or PowerPoint), to unified communication (VoIP or other video conferencing solutions) and various business apps like RingCentral Office or FreshBooks.
Although the offshore service market is being driven towards digitisation and automation, which is diminishing the importance of traditional offshore services, there are still opportunities for traditional sourcing in the European market. Mostly because of the increasing demand for outsourcing products and services, and also because of the increasing openness towards outsourcing in general.
- Follow the developments in As-a-Service sourcing and keep in mind that these can implicate your future offering. Good places to search for more information are the ISG-one and Gartner.
- Look into how your company could offer As-a-Service sourcing solutions where you become more customer oriented rather than product oriented.
16. Increasing interest in impact sourcing offers opportunities
Impact sourcing is a sourcing model that aims to improve people’s lives, families, and communities through meaningful employment in Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). For buyers it means prioritising suppliers who provide learning and career development opportunities to those who otherwise had limited prospects for long-term sustainable employment.
It goes beyond the idea of cheap labour. It is about making a positive impact and investing in people. Impact sourcing is often a catalyst for continuous job creation and benefits the whole community. It also goes beyond the philanthropy of the buyers. Impact sourcing has proven benefits to them. Buyers can tap into a pool of high-potential people in a market that is dealing with significant skills shortages.
The benefits of impact sourcing include:
- low costs
- proven, reliable service delivery
- a large and untapped talent pool
- a stable and engaged workforce
- social impact
Outsourcing to companies in developing countries (like you) already offers European buyers most of these advantages. However, to qualify as an impact sourcing provider, you need to show buyers that you are actively hiring and training people who generally have limited employment opportunities.
As of 1 January 2021, the government of the United Kingdom attributes 10% of the points in its Requests for Proposals to social value. Similar arrangements are seen across Europe, in both governments and companies (including SMEs). It is expected that other countries and companies will follow. It can be a vital part of any company’s corporate social responsibility policy. And it is therefore increasingly important as a buyer requirement.
Of course, European companies can also qualify as impact sourcing providers. This could mean more competition and a less straining skills shortage on the market. Nevertheless, the trend towards impact sourcing offers good opportunities for BPO and ITO providers in developing countries.
- Start an impact sourcing pilot project to see how it can benefit your business and the community.
- Ask business support organisations in your region how to realise such a pilot project. Examples are Harambee in South Africa, Sama in India, Pakistan, Kenya, South Africa and Uganda, Alorica in Latin America and the Caribbean, or the Mandela Legacy Foundation in South Africa.
This study has been carried out on behalf of CBI by Globally Cool.
Please review our market information disclaimer.